South Africa
follows a system of land registration where every piece of land
is reflected on a diagram and ownership recorded in one of the regionally
located Deeds Registries, where documents are available for public
viewing. South Africa is reputed to have one of the best deeds registration
systems worldwide with an exceptional degree of accuracy and guaranteed tenure. Property can be owned individually, jointly
in undivided shares or by an entity such as a company, close corporation
or trust, or a similar entity registered outside South Africa.
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NON-RESIDENTS
There are no restrictions on property ownership by non-residents,
save for a prohibition on illegal aliens owning immovable property
within South Africa. There are, however, procedures and requirements
which must be complied with in certain circumstances, such as, the
local registration of entities registered outside of South Africa
where it purchases property in South Africa and the appointment
of a South African resident public officer for a local company whose
shares are owned by a non-resident. In the event of a non-resident
purchasing property in the country with the intention of residing
here for longer periods, permanent residency will have to be applied
for in accordance with the given requirements and procedures of
South African law.
BUYING A PROPERTY
All contracts to acquire land must be in writing, contain
certain prescribed information and be signed by both buyer and seller
to be valid and legally binding. Contracts most commonly take the
form of an Agreement of Sale or Offer to Purchase which once accepted
constitutes an Agreement of Sale. Once an Agreement of Sale has
been signed by both parties it represents a valid and binding document
from which neither party can withdraw without incurring legal consequences,
save for certain instances where:
- the agreement is subject to certain conditions which are either
fulfilled/not fulfilled;
- the purchase price is less than R250 000.00 and certain additional
criteria in terms of the Alienation of Land Amendment Act are
present entitling the Purchaser to "cool off".
The de facto ownership of property can also be obtained by means
of acquiring the shares/members interest and loan claims in a company/close
corporation respectively which company/close corporation is the
registered owner of a property. These contracts, strictly speaking,
need not be in writing and can be concluded verbally which, although
legally binding, is not advisable and it is recommended to record
the agreement in writing to ensure that the material terms agreed
to are accurately recorded.
It is important, furthermore, to note that only a natural person
can acquire the members' interest in a close corporation. Accordingly,
if it is intended for a non-resident company or trust to be the
ultimate purchaser, provision can be made for the close corporation
to be converted to a private company at a nominal expense to facilitate
same and this should be a condition of purchase.
Accordingly the decision to enter into and sign an Offer to Purchase/Agreement
of Sale is not a decision to be taken lightly and it is recommended
that an inexperienced purchaser obtain independent legal advice
if uncertain in any respect.
FINANCIAL ASSISTANCE
There are restrictions on loans to non-resident purchasers of property.
In brief, the non-resident may only borrow up to a maximum of the
amount invested by the non-resident into the purchase of the property,
which translates into a 50% to value borrowing ratio. Such loans
are, however, subject to foreign exchange approval by the SA Reserve
Bank which approvals are efficiently handled by all South African
Commercial Banks offering financial assistance. Financial assistance
is granted in the form of a loan secured by a Mortgage Bond to be
registered in favour of the Bank granting the loan. Where the sale
is subject to financial assistance, this should be included in the
Agreement of Sale/Offer to Purchase as a suspensive condition. There
are stringent restrictions and prohibitions imposed where the property
is owned by a company and financial assistance is sought to finance
the acquisition of shares and loan accounts in the property-owning
company.
TRANSFER PROCEDURE
The registration of a property transaction is handled by
a specially qualified legal practitioner known as a conveyancer.
It is customary for the seller to appoint the conveyancer to attend
to the registration of transfer of a property sold, whilst
- the costs attendant on same are for the account of the purchaser,
unless contractually agreed to otherwise.
The conveyancer prepares the requisite transfer documentation that,
after signature by the purchaser and the seller, is lodged together
with the cancellation of any existing mortgage bonds and new mortgage
bonds to be registered in a regionally located Deeds Registry. The
deeds are subject to an intense examination process whereafter they
are made available for registration. On date of registration of
transfer all existing mortgage bonds registered over the property
are cancelled simultaneously with the registration of any new mortgage
bonds by the purchaser in favour of the bank granting financial
assistance. The purchaser is recorded as the new owner of the property
and the purchase price is paid to the seller. The above procedure
does not apply in an instance where the shares/members interest
and loans are acquired in a property-owning company/close corporation
where no change in ownership is recorded in the Deeds Registry.
It is important to note that upon transfer to the new owner, any
liabilities in respect of the property incurred by the previous
owner, remain with the previous owner and not necessarily pass to
the new owner, unless otherwise agreed to.
COSTS
Brokerage is payable where an estate agent is responsible
for concluding a sale of property. Brokerage is customarily payable
by the seller who mandates the estate agent to procure a purchaser
for the property. The seller is also responsible for the cost of
procuring a 'beetle free and electrical compliance' certificate.
The purchaser is responsible for the payment of transfer costs and
the costs of registering any new mortgage bonds over the property
purchased. Transfer costs include transfer duty payable to the Receiver
of Revenue calculated using the following formula, payable to the
Receiver of Revenue:
- R0 - R150 000 Exempt
5% between R150 001 – R320 000
8% on the balance above R320 000
- where a natural person purchases the property, shares or members
interest in a residential property owning entity; or
- 10% of the purchase price
- where the purchaser of the property, shares or members interest
in a residential property owning entity, is not a natural person.
Attorneys' fees for attending to the transfer and registration
of mortgage bonds are calculated according to a tariff. Further
sundry charges are imposed by the Deeds Registry and the Bank
granting financial assistance.
SIGNING OF DOCUMENTS
Documentation prepared by the conveyancer pertaining to
the registration of transfer of the property and any mortgage bond
to be registered over the property is required to be signed in black
ink and must be authenticated if signed outside South Africa. This
is sometimes inconvenient and it is possible, and often advisable,
to leave a General Power of Attorney in favour of an entrusted person
within South Africa to assist in this regard. Where the purchaser
is married, which marriage is governed by the laws of a foreign
country and a mortgage bond has been applied for, please note that
the spouse of the purchaser will be required to assist the purchaser
in signing the mortgage bond documentation. Marriages according
to the laws of the England and Scotland are exceptions to the aforegoing
rule.
BUYING PROPERTY:
THE OFFER TO PURCHASE/AGREEMENT OF SALE
The Offer to Purchase/Agreement of Sale will contain certain
of the following standard provisions:
PURCHASE PRICE
A deposit is not mandatory but serves as a gesture of good
faith on the part of the purchaser and an indication of financial
ability. This amount will be invested by the estate agent/conveyancer
in an interest-bearing trust account for the benefit of the purchaser.
Provision will be made in the Agreement for a guarantee to be
called for in respect of the balance of the purchase price. In general,
a guarantee will only be acceptable if issued by a local financial
institution which means that the funds will actually have to be
remitted to South Africa in order for a local bank to issue such
a guarantee or, alternatively, arrangements must be made between
a foreign and local bank for a back to back guarantee to be issued.
It is, however, possible to negotiate the issue of a Standby Letter
of Credit from an overseas institution in certain circumstances.
OCCUPATION, POSSESSION, TRANSFER AND OCCUPATIONAL RENTAL
Occupation is the physical occupation of the property whereas
possession is generally deemed to be the date upon which the purchaser
assumes responsibility for the property and it is customary for
the risk of ownership to pass on the date of possession. Transfer
refers to the actual date of registration of ownership in the Deeds
Registry in favour of the purchaser. Occupational consideration
is the rental payable by the party occupying the property belonging
to another where the date of occupation and date of transfer differs,
which is better expressed in Rand terms or as a percentage of the
outstanding balance of the purchase price.
VOETSTOETS
This is a standard inclusion in all deeds of sale and implies
that the property is bought 'as is.' 'As is' means 'in the exact
condition in which the property is found'. However, all patent and
latent defects present in the property within the sellers' knowledge
must be brought to the attention of the purchaser. It is not standard
in South Africa to conduct property surveys but these can be arranged
with the assistance of the estate agent or an attorney and should
be included as a condition of the purchase.
ELECTRICAL AND BEETLE-FREE CERTIFICATE
The property owner is required by law to be in possession
of a valid 'electrical compliance certificate' certifying that the
electrical installation at the property meets certain statutory
safety requirements. The beetle-free certificate certifies that
all accessible parts of the property are free of infestation by
certain defined beetle and this certificate, whilst a standard inclusion
in the Agreement of Sale, is neither a legal requirement nor included
in sales of sectional title units. The cost of attending to the
necessary repairs in order for the aforesaid certificates to be
provided, is generally accepted as being for the account of the
seller, although, the parties can contractually agree otherwise.
FIXTURES AND FITTINGS
A property is sold together with all fixtures and fittings
of a permanent nature situated thereat. Generally fixtures and fittings
include anything which is attached to the property or which by virtue
of its considerable mass accedes to the property. In the event of
any uncertainty, the purchaser is cautioned to ensure that all items
intended to be included in the purchase price are specified in writing
in the Agreement of Sale.
The format of agreements concluded for the acquisition of shares/members
interest and loan accounts in property-owning companies/close corporations
contains many of the aspects discussed above, although it is substantially
different and includes numerous warranties and indemnities granted
by the seller to the purchaser who acquires the property-owning
entity together with its financial history.
EXCHANGE CONTROL/REPATRIATION OF FUNDS
All funds introduced from outside South Africa to acquire
fixed property within South Africa may be repatriated together with
any profit on resale of the property, provided, the title deed of
the property has been endorsed "non-resident". Similarly,
funds introduced to acquire shares in a company/members interest
in a close corporation may be repatriated together with any profit
on resale, provided, the relevant securities have been endorsed
"non-resident". Funds, introduced into South Africa in
the form of a foreign loan to fund acquisitions of corporate entities
which own property in South Africa, may be repatriated in terms
of the original loan approval by the Reserve Bank. The profit on
resale may also be repatriated, provided, the relevant securities
have been endorsed "non-resident".
INCOME TAX
South Africa follows a revenue-based income tax system
meaning that income earned from a South African source will be subject
to ordinary income tax. Non Residents are liable for tax on a more
limited basis and their liability is dependent on the source of
their gross income being a South African source.
Any rental earned by non-residents in respect of South Africa properties
will be subject to income tax and it is the responsibility of the
non-resident to register as a South African Tax Payer.
CAPITAL GAINS TAX
South African residents are liable for the payment of Capital
Gains Tax ("CGT") on the disposal of any asset, subject
to certain limited exceptions. Non-residents, however, are only
liable to pay CGT on the disposal of the following:
- Immovable property situated in South Africa, including any
right or interest in immovable property (this also includes an
interest of at least 20% in a company where 80% or more of the
value of the net assets of the company is attributable, directly
or indirectly, to immovable property in South Africa);
- Assets of a permanent establishment of a non-resident through
which trade is carried on in South Africa.
CGT is payable in the year in which the asset is disposed of and
is calculated by adding 25% of the capital gain, or profit, to the
individuals income for that year and taxing that income at the individuals
marginal rate of income tax. The maximum marginal income tax rate
for individuals in South Africa is presently 40% (reached at taxable
income levels above R270 000). The capital gain is calculated and
disclosed in the individuals' income tax return for the year in
which it is sold. Thus, if a non-resident disposes of an immovable
property in any year of assessment and is not already registered
as a South African taxpayer, he or she will have to register as
such and submit an income tax return reflecting the calculation
of the capital gain and will be liable for the payment of CGT on
that gain.
CGT became effective on 1 October 2001 and is thus payable only
from that date. The amount of a capital gain is calculated either
by deducting the value of the property as at 1 October 2001 (together
with the costs of acquiring and improving the property) from the
proceeds on disposal of the property or by apportioning the amount
of time the property was owned between the period before 1 October
2001 and the period after that date.
South African residents do not pay CGT on the first R1-million
of profit made on the disposal of their primary residence. However,
non-residents will not qualify for this exemption if their primary
residence is not in South Africa.
Provided with courtesy by
Cape Town Office
3rd & 4th Floor Southern Life Centre, Riebeeck Street, Cape
Town
P O Box 395/ Dx 45, Cape Town 8000
Telephone No: 021 406 9100 Fax No: 021 419 7909
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